Wilful defaulters

According to the latest data posted by the All India Bank Employees’ Association (AIBEA), as many as 5,610 willful defaulters owe approximately Rs 58,792 crore to several public and private sector banks across the country. Updated till March 2016, the data lists names of such defaulters, and states that nationalised banks, with 3,192 such accounts, are owed the most – Rs 28,775 crore. To the uninitiated, willful defaulters are truant borrowers who, despite having the capability to repay the money, do not cough it up. They are alleged to be doing it willfully. “The government and the RBI are not taking tough measures to recover the bad loans,” said AIBEA General Secretary CH Venkatachalam. “Even their [defaulters’] names are not being published.” He argues that the people have the right to know who the loan defaulters are as loans are given from public money. “When poor borrowers are harassed, corporate defaulters are given all concessions,” he added.

To suggest that the RBI is not taking tough measures to recover bad loans is a bit premature. The banking sector clean-up initiated under the RBI’s Asset Quality Review is far from over. The good news is that banks have been forced to recognise bad loans as bad loans and not pass them off as restructured assets. Anyone will tell you that the first step in tackling a problem is to recognise that it exists. Banks, particularly those in the public sector, have started that process.

However, there has been much debate on whether banks should declare the names of defaulters in public. Earlier this year, the RBI submitted a list of defaulters owing Rs 500 crore or more to public sector banks under directions from the apex court. The argument often posed by those who want the banks to go public with the names is that it will ensure greater transparency in a sector that is reeling under the weight of bad loans. But will naming and shaming them work? Critics have argued that such methods may work for loans given to individuals or smaller establishments. But it may not work for high-profile corporate borrowers because many of them are too shameless to care. Even after he was declared a willful defaulter, liquor baron Vijay Mallya continued to flaunt his wealth. In any case, the names of willful defaulters are in the public domain because the banks have filed suits against them. The solution to the problem of bad loans lies in fixing the legal system.

In a recent column for Mint, Tamal Bandopadhyay, a leading expert on the Indian banking sector, wrote: “The debt recovery tribunal is a fast-track route to dispose of such cases but the borrower can appeal against a tribunal judgement in a high court and even Supreme Court. Thousands of such cases have dragged on for years because of an extremely slow legal process. Strengthening the legal system will lead to quicker bad loan recovery and help nurse the banking system to health. Tarring all defaulters and bankers with the same brush will choke the flow of funds to the business, scare the bankers and kill entrepreneurship.”